When it comes to personal tax, a broad range of reliefs and allowances can be applied to the likes of Capital Gains Tax (CGT) and Inheritance Tax (IHT), and these should be carefully considered.
CGT, for example, has a reputation for leaving people with a potentially hefty tax bill on disposal of valuable assets. However, careful planning about how and when an asset is disposed of can have a major impact on the size of the bill. Likewise, making careful use of other allowances can see your tax bills shrink considerably.
The capital gains tax allowance in 2018-19 is £11,700 and rises to £12,000 in 2019-20.
The tax-free IHT allowance is £325,000 in the 2019-20 tax year, this allowance has remained the same since 2010-11. The standard inheritance tax rate is 40 per cent over the £325,000 threshold.
For example, if you leave behind an estate worth £500,000, the tax bill will be £70,000 (40 per cent on £175,000 – the difference between £500,000 and £325,000).
From 6 April 2019, the Personal Allowance is set to rise from £11,850 to £12,500. This will give basic rate taxpayers an extra £130 tax-free a year. For those earning more than £46,350 the 40 per cent tax threshold will rise to £50,000.
National Insurance contribution (NIC) limits have also moved in line with the change in the income tax threshold. Those earning more than £46,350 currently pay 12 per cent NICs on earnings up to that level but only two per cent on higher levels.
However, from April they will pay the full 12 per cent rate of NICs on everything up to £50,000, as the upper earnings limit is increased. The two per cent rate will kick in on earnings above £50,000.
In terms of dividends, both tax years of 2018-19 and 2019-20, did not require any tax on dividend income on the first £2,000 received because of the tax-free dividend allowance. The allowance was cut from £5,000 in the 2017-18 year. So this would mean if you’re filing your taxes for the 2018-19 tax year you’ll receive the lower allowance for the first time.